Clear Channel buyout in trouble

How many here said the bottom was in, this is telling you that some of these LBO were just was way OVERPRICED to begin with, mostly inflated to the point where it was a complete joke. How long did anyone here actually think that these buyouts could take place as long as they did, I remember in 2006 to mid 2007 about 1-2 deals a week were going through, now your lucky to see 1-2 major deals a months.

NEW YORK (Reuters) - The $20 billion leveraged buyout of U.S. radio operator Clear Channel Communications Inc (NYSE:CCU - News) was in jeopardy on Tuesday, with banks increasingly reluctant to provide financing, a source familiar with the situation said.

The banks appear unwilling to account for any losses on the loans they agreed to make for the deal, the source said. But the final resolution is unclear, with the private equity buyers still wanting to do a deal, the source added.

If the Clear Channel deal falls apart, it would be the latest in a series of leveraged buyouts (LBOs) that have failed since the credit crisis began last year. It would leave a handful on the table still, such as the $6.1 billion buyout of Penn National Gaming Inc (NasdaqGSENN - News) and the $34.1 billion buyout of Canada's biggest telecom company BCE Inc (Toronto:BCE.TO - News).

Clear Channel struck the deal last year to be bought by private equity firms Thomas H. Lee Partners and Bain Capital Partners LLC for $39.20 a share. But the market has changed since then and its stock has for months traded significantly below the offer price amid concerns about the deal.

Its shares fell 21 percent to $25.70 after-hours on Tuesday after falling 5.6 percent in the regular session on the New York Stock Exchange, a sign traders felt the deal was doomed.

"If it fell apart, it would be seen as a casualty of the credit crunch as well as the secular and cyclical challenges of the radio industry," said David Bank, analyst with RBC.

Danielle Romero-Apsilos, a spokeswoman for Citigroup, declined to comment. Spokespeople from Credit Suisse, Deutsche Bank, Morgan Stanley and Wachovia referred questions to Citigroup. Royal Bank of Scotland Group was not immediately available for comment.

A spokeswoman for Clear Channel said the company had no immediate comment. The company has previously said it expects the deal to close by March 31.

If the deal does fall apart, it could follow others such as United Rentals (NYSE:URI - News) into litigation.

"A lot has changed since this deal was announced," said Hillary Sale, professor of corporate finance and law at the University of Iowa College of Law. "Someone's going to have to pay breakup fees, and the question is, whether it's just private equity firms, or whether the banks are on the hook.... It depends on the nature of the agreements with the banks."

The original agreement said that the buyers would pay Clear Channel a breakup fee of $500 million if the deal falls apart due to a "willful and material breach."

Since the deal was originally announced average loan prices have contracted significantly. In other recent LBO financings, such as the buyout of Harrah's Entertainment, the loans were sold at a significant discount and the cost of this was mostly borne by the banks.

Banks have to record decreases in the market value of loans in their income statements in a process known as "marking to market." Any declines in the market value of these loans could cut into bank earnings and, in the worst case scenario, cut into capital levels.

Banks are increasingly reluctant to take on credit risk because their balance sheets are strained by subprime mortgages, collateralized debt obligations and other forms of debt that are performing much worse than expected.

The battle for Clear Channel had numerous twists since the company announced in October 2006 that it had hired Goldman Sachs Group Inc (NYSE:GS - News) to help it evaluate alternatives.

In November, Bain and T.H. Lee beat out a rival consortium to buy the company for $37.60 a share. But their bid ran into trouble when some said it undervalued the company. The buyout firms raised the bid to $39 a share and later $39.20 a share.

The deal still faced a tough shareholder vote hurdle under Texas law but in September, they approved the bid and in February it passed regulatory approvals.